Brazilian companies eye Chinese market

As China becomes the largest export market for Brazil and Chinese investment in the South American nation expands from resources to the manufacturing and service sectors, Brazilian companies are also looking for ways to step up their presence in the Asian nation.

At present, China accounts for only 0.06 percent of the total Brazilian outbound investment in the last decade. The amount also makes up 0.04 percent of the total investment entering China in the decade.

According to the latest survey by the China-Brazil Business Council, only 57 Brazilian companies are operating in China. About half of them, or 51 percent, are service providers, such as Bank of Brazil and the law firm Felsberg; about a third, or 28 percent, are in manufacturing sector, such as aircraft maker Embraer; and a fifth, or 21 percent, are related to natural resources sectors, such as Vale and Petrobras.

Claudio Frischtak, a consultant to the council, said the asymmetrical situation of Chinese investment in Brazil and Brazilian investment in China is due to some historic reasons.

“In the 1980s, the Chinese looked to improving efficiency in manufacturing, and in those days, there were real opportunities for Brazilian companies to transfer their manufacturing knowledge and become a partner in Chinese development,” Frischtak told a conference held on Monday at the Council of the Americas in New York, analyzing the China-Brazil council survey on Brazilian companies’ experience in China.

“Brazilian companies did not do that because they were preoccupied with hyperinflation and other problems. They were struggling to survive. It was a lost decade,” said Frischtak, also president of the consultancy known as Inter.B.

When Brazilian companies were ready to invest in China at the beginning of the 21st century, they found the country had shifted its priorities.

“If you are in car manufacturing, it’s a different ball game now. The Chinese are doing the reverse. They are investing in car manufacturing factories, including in Brazil,” said Frischtak.

Acknowledging that the Chinese are extremely competent in manufacturing, both Frischtak and Sergio Amaral, president of the business council, said Brazil is very competitive in agriculture, which faces non-tariff barriers in China and many other countries.

Frischtak said progress has been made lately as Brazilian companies are now engaging in China’s meat processing sector, catering to the booming middle class there.
Amaral, a former Brazilian trade minister, expressed his concern over restrictions and licensing requirements in China.

He gave the examples of Embraer not being able to get approval to produce its latest model of planes in China, and Vale, the mining giant, being unable to distribute directly to Chinese buyers.

“The Chinese consumers get a very high price, but Vale gets a very low price,” he said.

Noting that these factors affect the competitiveness of Brazilian companies in China, Amaral admitted that the lack of integration of the Brazilian economy in Asia is a huge disadvantage when intra-Asia trade accounts for more than 50 percent of trade in the continent.

“On top of this trade integration, there is an integration of the production chain in Asia,” Amaral said. He added this has made it difficult for Brazil to export to Asian economies.

He also expressed regret over Brazil’s high interest rate, huge fiscal burden, overvalued currency and inadequate infrastructure as these factors put the nation at a huge disadvantage in competing with China.

“We have an enormous challenge to increase our competitiveness,” said Amaral, also former Brazilian ambassador to France and the United Kingdom.

While the survey finds successful Brazilian companies operating in China often have a good Chinese partner, it also calls for better understanding of China by Brazilian companies and better preparedness by Brazilian government institutions.

Sergio Trindade, a 2007 Nobel Peace Prize co-laureate and former United Nations assistant secretary-general for science and technology, said Brazil should invest more in China and Asia, citing his advocacy of Brazilian ethanol in China.

“If you are really interested in Asia, you should be a shareholder of the Asian Development Bank. If you are really interested in China, you should learn Mandarin. It makes a difference,” said Trindade, who has made more than 60 trips to China over the past decades.

“In a nutshell, China will continue to be an important relationship for Brazil for the coming years. There is no question about that. Brazil needs China and China needs Brazil,” said Frischtak.